TaxTMI 
TaxTMI 
2024 (2) TMI 793
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.... (a) Petitioner in W.P. No. 8815/2022 is the husband of petitioner in companion W.P. No. 8797/2022; they are an octogenarian couple. In the year 2010 and up to the year 2016, petitioner-Dr. Ramdas Madhava Pai acquired certain shares in Manipal Education and Medical Group India Private Limited (hereafter 'MEMGIPL'). In March 2017, his son Dr. Ranjan Pai gifted shares held in MEMGIPL to petitioner-Dr. Ramdas Madhava Pai. Likewise, his daughter-in-law gifted shares to petitioner-Smt. Vasanthi Pai. On 16.11.2017, the National Company Law Tribunal (hereafter 'NCLT') approved the scheme of demerger of the property management business of MEMGIPL into another company namely Manipal Integrated Services Private Limited (hereafter 'MISPL'). By way of consideration, 10,87,97,101 shares of MISPL were allotted to the shareholders of MEMGIPL. The appointed day of demerger was denoted as 30.11.2016. Accordingly, petitioner-Dr. Ramdas Pai and petitioner-Vasanthi Pai got to hold 5537216 and 5359885 shares respectively in MISPL. Another order dated 30.11.2017 came to be passed by the NCLT approving the demerger of facility management services of MISPL into Quess Corp. Ltd. In consideration of this ....
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....ounds. (d) The scheme that has been approved by the NCLT cannot be called into question by the Income Tax authorities, who too were parties before the NCLT. III. AS TO WHAT THE REVENUE CONTENDED: (a) That the decision of the Assessing Officer u/s. 148A(d) to re-open the assessment is by its very nature tentative; what is being looked into is re-opening- worthiness of the assessments. All submissions of the petitioners would be considered when the assessment is undertaken. (b) That the issues raised by the petitioners being disputed questions of facts merit adjudication at the hands of Assessing Officer. For reopening assessment, what one needs to see is, only a prima facie case of escapement of income. That the prima facie opinion formed u/s. 148A(d) is based on material available on record. Therefore, at this stage, the challenge is premature. (c) The assesses had filed Returns of Income; no assessment was made although only an intimation was sent. Consequent to a survey under Section 133A on Quess Corp Ltd, it was found that consideration was liable to be taxed as short term capital gains. (d) A series of transactions undertaken by the petitioners and the compan....
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....upon the Assessee to furnish a Return of Income. However, with effect from 1.4.2022, such prior permission is not contemplated under the circumstances specified in the Second Proviso. (ii) Section 148A, which assumes pivotal relevance in the matter has a heading which runs "Conducting inquiry and providing opportunity before issue of notice under Section 148." This provision apparently employing the word 'shall' and in its text, nothing being repugnant, one can safely assume it to be mandatory. Thus, issuance of notice to the Assessee as to why a notice under Section 148 should not be issued to assess his 'escaped income' is a sine qua non. The provision also mandates the Assessing Officer to objectively consider not only the material gathered but also the reply furnished by the Assessee before an order is passed permitting the issuance of Section 148 notice. Rest of the provisions of the Act do not matter since it is the specific case of Assessees that the impugned action lacks jurisdictional facts. Their thrust is on the questions, whether at all the subject notices could have been issued u/s 148 and whether the subject orders could have been made in their present form &....
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....rima facie satisfied that there is "escapement of income", unlike earlier law which permitted action based on mere reason to believe. Now mere reason to believe, cannot be a ground for carrying out assessment under section 147 of the Act. (c) Section 148 of the Income Tax Act, 1961: As per section 148 of the Income Tax Act, 1961, before making the assessment, reassessment or re-computation under section 147, the AO has to serve notice under section 148, requiring the Assessee to furnish a Return of Income during the previous year corresponding to the relevant assessment year. The Return so furnished shall be considered as the one furnished under section 139 of the Act. As per first Proviso to section 148, no notice under section 148 can be issued unless there is 'information which suggests that the income chargeable to tax has escaped assessment' in the case of an assessee for the relevant assessment year. Firstly, the Assessing Officer should have information; secondly, such information should suggest that there is an escapement of income. The phrase 'information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment' i....
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....ernment Agency/Law Enforcement Agency. (ii) Information arising out of Internal Audit objection, which requires action u/s 148 of the Act. (iii) Information received from any Income-tax Authority including the assessing officer himself or herself. (iv) Information arising out of search or survey action. (v) Information arising out of FT&TR references. (vi) Information arising out of any order of court, appellate order, order of NCLT and/or order u/s 263/264 of the Act, having impact on income in the assessee's case or in the case of any other assessee. (vii) Cases involving addition in any assessment year on a recurring issue of law or fact a. exceeding Rs. 25 lakhs in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune while at other charges, quantum of addition should exceed Rs. 10 lakhs. b. exceeding Rs. 10 crore in transfer pricing cases. and where such an addition: 1. has become final as no further appeal has been filed against the assessment order; or 2. has been confirmed at any stage of appellate process in favor of revenue and ....
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....t to a case of income having escaped assessment. In LARSEN AND TOUBRO LTD Vs STATE OF JHARKHAND 2017-TIOL-129-SC, the following has been stated: "What is information? According to the Oxford Dictionary, 'information' means facts told, heard or discovered about somebody/something. The Law Lexicon describes the term 'information' as the act or process of informing, communication or reception of knowledge. The expression 'information' means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment. A mere change of opinion or having second thought about it by the competent authority on the same set of facts and materials on the record does not constitute 'information' for the purposes of the Act. But the word "information" used in the aforesaid Section is of the widest amplitude and should not be construed narrowly. It comprehends not only variety of factors including information from external sources of any kind but also the discovery of new facts or information available in the record of assessment not previously noticed or investigated." ....
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....exus which should be there between the material before the Income Tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. The Court also explained the meaning of the term 'reason to believe' and distinguished the same with 'reason to suspect' as under: "11. the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the s....
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....though the AO used the phrase 'reason to believe' in his order, admittedly, between the date of orders of assessment sought to be reopened and the date of forming of opinion by the ITO nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. (v) M/s. SANMINA-SCI TECHNOLOGY INDIA PRIVATE LIMITED Vs ACIT 2021 (5) TMI 486 - MADRAS HIGH COURT: In this case, the assesse had filed a Return of Income claiming deduction under Section 10A and 10AA of the Act and by making a full disclosure in relation to the deduction claimed under the provisions of Section 10AA. The assessment order under section 143(3) was also passed and the claim of deduction under section 10A was allowed. Later, the AO issued a notice under section 148 for re-assessment on the ground that the assessee has claimed excess deduction under section 10A. The High Court held that the provisions of Section 147 prescribe a limitation of four years normally, extended to six years in cases where an order of scrutiny has been passed at the first instance. In add....
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.... the reassessment proceedings initiated vide notice under Section 148. It is for this reason that issues which require determination at the stage of reassessment proceedings and in respect of which departmental remedy is otherwise available are not required to be determined at the stage of decision by the assessing authority under Section 148A(d). The scope of decision under Section 148A(d) is limited to the existence or otherwise of information which suggests that income chargeable to tax has escaped assessment". Accordingly, the Court declined interference with respect to the notice issued under Section 148. (ii) GANDHIBAGSAHAKARI BANK LTD. vs DCIT [2023] 156 taxmann.com 221 (Bombay): In this case, the return filed by the assessee was scrutinized and an assessment was carried out under section 143(3) of the Act. Thereafter, notice under section 148 was issued proposing to undertake reassessment by reopening the earlier completed assessment. Reason provided for reopening of the assessment was by indicating that information was available on the insight Portal-CRIR/VRU High Risk cases for an amount of Rs. 17.99 crores. The said amounts were not reflected by the ass....
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....hat there exists no material to show that there was escapement of assessment as the information was already available with the department. Further, the High Court made the following observations with respect to amended provisions of section 148 w.e.f. 01.04.2021: - "On a conjoint reading of the provisions newly introduced, the new scheme of re-assessment is seen to have incorporated the procedure set out in the judgement of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19, statutorily. - The respondents argue that the new scheme, with the omission of the phrase 'reason to believe' has done away with the requirement that the officer must establish 'escapement of tax', prima facie, at the stage of assumption of jurisdiction. I do not agree. Such a requirement continues in light of the proviso under section 148 that casts a statutory burden upon the officer to be in possession of 'information' suggesting that income chargeable to tax has escaped assessment for the year concerned. If the existence of such information is not established even at the initial stage, the foundation of the proceedings s....
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.... conclusion whether such information is good enough to allow a notice to be issued under Section 148. This is how, to my mind, the new provisions should be interpreted so as to make them workable in accord with the intent to achieve the purpose for which statutory change was brought about. An argument to the contrary would hijack the statutory object. (a) Now, to say that the Assessing Officer can invoke Section 147 without any reason would, apart from being contrary to the aforestated rule of law, also fall foul of Article 14 as he is expected to act reasonably. The requirement to act reasonably being in-built into the amended provision, an act in variance with the same is unsustainable. Therefore, I am of the considered view that the Assessing Officer should have information as defined in Explanation 1 to section 148 that suggests escapement of income and only thereafter, the provisions of Section 148 can be invoked. Further, such an exercise should be reasonable and not fanciful or roving as pointed out in ITO vs LAKHMANIMEWAL DAS (1976) 3 SCC 757. Though this decision was rendered long before the amendment to the subject section was effected, its inner voice animates t....
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....ition' as distinguished from 'means and includes definition'. This Explanation enumerates only two [upto 31.3.2022] and five [from 1.4.2022] categories and the information even if it be true, unless is the one relatable to any of these categories, the jurisdiction cannot be assumed by the Assessing Officer. It hardly needs to be stated that where the legislature employs 'means definition', it is exhaustive and therefore, nothing can be added vide P.KASILINGAM vs. P.S.G. COLLEGE OF TECHNOLOGY, 1995 Supp (2) SCC 348. (d) In the opinion of this court, the term 'information' appearing in Explanation 1 to Section 148 cannot include the return of income filed by the Assessee as it does not fall within any of the above five categories specified therein. Even the CBDT instructions, though may not be binding on the issue of interpretation, also do not talk of the very Return which has been filed becoming information permitting the Assessing Officer to issue notice under section 148 stating that income has escaped assessment. In fact, based on the returns filed by the petitioners, it was open to the Assessing Officer to undertake a regular assessment under Section 143 if he had felt....
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....the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." The safeguards which the above observations indicate made their way into legislative amendment that has eventually recast the subject provisions of the Act. (ii) The newly introduced section 148A of the Act leaves no manner of doubt that before initiating action under Section 148 by issuance of a notice, the Assessee should be given an opportunity of hearing as to why notice under section 148 should not be issued. In other words, even before a notice for income escaping assessment is made under Section 148, a salutary provision is introduced to consider the reply filed by the Assessee. This ensures that, notices of the kind are not issued in matters where prima facie there is no income that has escaped assessment or for other valid reasons. Further it is made imperative to hear him before an order is passed under Section 148A(d), to assess or not, with adequate reasons. Whatsomore, the order under section 148A(d) requires the pr....
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....iction under Sec. 148 is perverse and unsustainable. H. AS TO CONTENT AND COMPLIANCES OF THE IMPUGNED NOTICES: (i) The subject notices issued u/s. 148A(b) of the Act have three paragraphs, and of them only one sets out the reasons for re-opening: It says that as per the information available with the department in connection with the scheme of arrangements between Quess Corp Ltd and MISPL, the assesses have been allotted securities for consideration; the same is taxable u/s. 56(2)(x)(c); since the shares are sold before 31.3.2018, there is a case of short term capital gains liable to suffer tax. Admittedly, the Assessees had sent detailed replies inter alia stating that Sec. 56(2)(x)(c) was not invocable; the issue of taxability of capital gains would not arise since there is no 'transfer' vide Sec. 47; the holding period of shares by the petitioners far exceeds 12 months. The subject notices do not speak of 'round-trip-financing' which according to the Revenue allegedly lacks 'commercial substance and bona fide'. This lacuna was pointed out by the petitioners. The grounds urged in the replies have not been duly discussed. Thus, there is a legal infirmity of great magni....
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....ch as such a notice happens to be the foundation on the basis of which such an order can be passed, and not otherwise. That is how the statutory scheme is devised. Definitive conclusions as to grounds that are not indicated in the proposal notice cannot be said to be in line with the scheme and purpose of Section 148A. This apart, non-consideration of the reply relating to Section 56 and Section 47 would make the order also violative of the mandatory requirements of Section 148A. This view is supported by the latest Division Bench decision of Calcutta High Court in SOMNATH DEALTRADE PRIVATE LIMITED. VERSUS UNION OF INDIA & ORS [2023] 455 ITR 720 (Cal) wherein it has been observed as under: "...The assessing officer no doubt has referred to the assessee's reply dated 9th April, 2022 but there is no discussion as to the objection raised by the assessee in their reply. There is no discussion on the documents, which were placed by the assessee along with the reply with soft copies uploaded in the e-proceeding. Though the assessing officer states that "in the light of the discussion and material available on record he was of the opinion that income chargeable to tax has escaped....